401K based on company stock

Client has 540 shares of company stock in her 401K worth about $25,000.

Company takes easy way out, the big B (Bankruptcy) and declares all stock worthless. Other than SOL, is there any other way to handle this?

Reply to
B Greene
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If the 401(k) plan still exists: SOL.

If the 401(k) plan no longer exists and client had no cost basis: SOL.

If the 401(k) plan no longer exists and client had a cost basis (made after-tax contributions): Schedule A Misc. Itemized Deduction subject to 2% AGI limitation for the loss of cost basis.

Reply to
Alan

Isn't this the same as buying any stock or mutual fund ina 401k, or an IRA? you can't write off the loss? If you can write off losses in an IRA or 401k I'd be surprised regardless of whether it's company stock or not. same treatment??

Reply to
steve-o

You can write-off a loss in an IRA if after closing all your IRA accounts the amount received is less than your cost basis. You would only have a cost basis if at some point in time you either made a nondeductible contribution or you rolled over a tax-deferred retirement account that had a cost basis. This same rule holds for Roth IRAs.

You would only have a cost basis in a tax-deferred retirement account such as a 401(k), if you were allowed to make after-tax contributions. In many companies, highly compensated individuals, as defined by Section 401(k)(5), have the ability to make after-tax contributions.

If after closing the 401(k) by taking a lump-sum distribution in cash, you receive less than your cost basis, you have a deductible loss.

Reply to
Alan

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